The skies surrounding commercial real estate markets are clearing, suggest the Emerging Trends in Real Estate 2025 (ETRE 2025) findings. As pandemic-related structural changes settle into place, cyclical economic trends, such as interest rates, demand, and construction levels, are now the key drivers to watch.
As more single-family rental (SFR) operators rely on build-to-rent (BTR) development to supply new inventory, construction starts have steadily risen, reaching another record high in the third quarter of 2024. SFR/BTR construction has eclipsed 92,000 units in the last four quarters — an all-time high and an annual increase of 31.4%.
As renters face a national shortage of 7 million low-income rental homes, the U.S. Department of Housing and Urban Development’s (HUD) Low-Income Housing Tax Credit (LIHTC) program is pivotal in helping to close the affordability gap for renters. It is the nation’s most significant resource for affordable apartment housing construction, which gives state and local agencies approximately $10 billion in annual budget authority to issue tax credits for affordable housing development.
The Federal Housing Finance Agency (FHFA) announced a $3 billion boost to Fannie Mae and Freddie Mac’s volume cap for loan purchases in 2025 to $146 billion ($73 billion for each agency). This increase in FHFA loan caps for 2025 aligns with industry expectations, given the anticipation of improving market conditions and lending activity expected in a lower interest rate environment. Next year’s cap for the Government-Sponsored Entities (GSEs) is an increase of approximately 4% from the $140 billion limit set for 2024.
The U.S. multifamily market held steady in a more normalized cycle through the first three quarters of 2024, following its skyrocketing recovery from the pandemic-related contraction. Rental demand remained strong, driven by the continued nationwide housing shortage and strong wage growth, while the high levels of new construction seen over the last two years appears to have peaked.
Small multifamily’s normalization pushed forward last quarter as the Federal Reserve made a long-awaited reduction to the target federal funds rate. Arbor’s Small Multifamily Investment Trends Report Q4 2024, developed in partnership with Chandan Economics, shows signs of stability have multiplied. Robust rental demand, a limited supply of quality affordable housing, and several other promising developments should support the subsector’s strength heading into 2025.
The U.S. multifamily market held steady in a more normalized cycle during the third quarter of 2024. Rental demand remained strong, while new leaders emerged among the top markets for rent growth.
One of the most essential factors multifamily investors need to consider before executing a transaction is the health of the local labor market. Wage growth and other trends are driven by a delicate, constantly adjusting balance of labor supply and demand. In some markets, an inflow of employers can cause wages to spike. In others, population outflows can create the same effect. In this deep dive, we expand on the data findings from the 2024 Top Markets for Multifamily Investment Report, exploring the unique conditions driving metro wage growth trends.
A panoramic view of how Arbor grows financial partnerships through successful
product executions that deliver results for our clients
Units
Torrance
Year Built
The owner of a California apartment community wanted to add 12 new units to a multifamily complex located in the heart of the South Bay region of Los Angeles. This repeat Arbor borrower utilized a short-term, variable-rate bridge loan in part to finance the new units; later, the owner sought to convert their bridge loan to permanent, long-term, fixed-rate financing. The borrower was also interested in exploring how enrolling in green financing could provide additional cost savings.
Arbor thoroughly examined the borrower’s position and cash flow and determined they would benefit most from securing a long-term fixed-rate loan through Arbor’s versatile FHA 223(f). We then educated the apartment complex owner about the U.S. Department of Housing and Urban Development’s (HUD) green program and how it could benefit them. Next, we worked closely with our partners at HUD to secure our borrower a fixed-rate FHA 223(f) loan with permanent financing that would maximize net operating income (NOI) as the asset accumulates cash flow.
In response to market conditions, Arbor acted quickly. Through our long-standing relationships at HUD, we expeditiously generated a firm commitment for our borrower and closed within 30 days. The entire Bridge-to-HUD process took only 15 months. They received long-term fixed-rate permanent financing to add units to an upscale apartment community, which includes a gym, a swimming pool, and electric solar panels. Our borrower was then able to lock in a highly competitive rate with additional cost savings available through HUD’s green program. The accommodation of the 12 new units within the underwriting process went seamlessly, resulting in expeditious execution that eliminated interest volatility and, ultimately, maximize loan proceeds.